In the 2000s, Turkey’s real estate market grew exponentially, spurred on by GDP growth, a booming young population and increased foreign real estate investment as a result of a change in mortgage and reciprocity laws. According to the Turkish government, real estate sales to foreigners totaled $2.64 billion in 2012. Year on year growth in that period also boomed: 2013 house sales exceeded 2012 levels by 65%, according to the consulting firm Deloitte.

And Turkey topped the list of countries in Knight Frank’s Global House Price Index for four consecutive quarters. Home prices grew by 15% in the first three months of 2016 compared with the same period in 2015, Knight Frank reported.

“İstanbul turned into a construction site, particularly in the last 10 years,” Mr. Bertrand said.

Government backs development efforts

The market was spurred on by the Turkish government, which gave advantages to construction contracts. Istanbul in particular was heavily invested in city planning.

“The impact of real estate investments on the overall population welfare is much more direct and tangible than investments in research and development and education,” said Mr. Bertrand. “Furthermore, because it is already a critical industry…representing over 6% of GDP, in a populist urge, the government has used the sector as…a jump-start of the overall economy.”

In 2015, at the peak of the market, 1.3 million homes were sold in Turkey, with 20% of total sales in Istanbul, according to a report by Pamir & Soyuer, a Turkish real estate firm, which collaborates with Douglas Elliman and Knight Frank. Luxury highrises reflected the growing urban population’s interest in being in the center of the city. Entire slums in central Istanbul were removed and replaced with new developments. And around the periphery of the city, new villas sprouted.

According to a report by RREEF Property Trust, the urban area in Istanbul province increased by more than 40% between 1990 and 2005.

The city grew from both public and private investment, according to Ozlem Atalay, a researcher at Pamir & Soyuer. “The existing low-quality stock within the city center or around the periphery areas caught the attention of the government, specifically after 1999 and 2011 earthquakes,” Ms. Atalay said.

In Istanbul, the private luxury market, in particular, was blossoming to the point of oversaturation. Buildable land in the city is extremely limited, so to cover the cost of construction, developers skewed to the high end.

“To some extent supply created its own demand,” Mr. Bertrand said. “A lot of construction companies focused their business on luxury houses due to extremely high cost of land, and consequently a surplus of luxury houses has been created in Istanbul.”

According to Mr. Bertrand, foreign buyers, who could afford to invest at the high-end more than domestic buyers, were also attracted to Turkey, encouraged by the rights granted to them by the government to increase foreign investment.

Potential buyers uneasy over political unrest

In recent months, however, the storyline has shifted. With refugees streaming in from Syria, terrorist attacks in the country, and political tension around election cycles, the real estate market has stalled. The attempted coup against President Recep Tayyip Erdoğan in July of this year created a dip in the interest in foreign investors.

“We only see a drop in foreigners’ demand for new houses in July 2016, followed by a slight recovery the following months of August and September,” said Mr. Bertrand. “We expect at the end of 2016 the numbers of houses sold to foreigners to match the 2014 results and remain below 2015, the strongest year ever.”

However, some experts like Ms. Atalay, feel these fluctuations will not affect the ultra high-end too much, where demand and supply are more stable.

For the most coveted properties in Istanbul, the mansions directly on the Bosphorus waterway, the prices are steady, and so are supply and demand, according to Ms. Atalay. “The demand for them is limited and they are limited,” she said.

An opening for ‘shrewd and savvy’ buyers

Annie Burnett, from Luxury Property Turkey represents many projects in Bodrum, a popular beach area on the Aegean Sea. Bodrum is over 400 miles away from Istanbul and almost 1,000 miles away from the Syrian border. Though there is a loss of confidence in Turkey, investors and developers are still creating new developments, hotels and clubs in this area of the country.

“Prices in Bodrum continue to increase irrespective of political instability,” said Ms. Burnett. “Bodrum has a strong domestic pull, plus there is huge interest from neighboring countries like Lebanon.”

If there is any price fluctuations, this could be used to the buyers’ advantage, according to Ms. Burnett. “Shrewd and savvy buyers are thinking ‘there’s a deal to be done here,’” she said.

The unrest also works in other ways. Bodrum also emerges as a place that can court foreign buyers who now find unrest in the places where they used to buy second homes or go on vacation, such as Syria and Egypt. “It is a good pull for buyers from the Middle East because they have run out of options,” said Darren Edwards, also of Luxury Property Turkey.

Will the impact of political unrest carry over to 2017?

It remains to be seen what the full effects of the political instability will be on the rapid urban development in Istanbul.

Erik Anderson, a principal architect at Forum Studio, has been involved in many large-scale planning projects in the city, and is currently working on a new mixed-use development, The Pearl of Istanbul, due to be completed in 2023. He thinks the pace of his development has been affected by the instability. The project is yet to break ground.

The Pearl of Istanbulforumstudio.com

The political upheaval is also coming at a time when the market in Istanbul is very saturated. According to Mr. Bertrand, there are more than 560 branded projects under construction, 115 of which are larger than 500 units, for a total of 190,000 units.

“In areas where there is a disequilibrium between the nature of supply and the nature of demand,” Mr. Bertrand said, “we can expect an excess of supply which should have a direct impact on the downward evolution of prices.”

However, Mr. Bertrand pointed out that the government is working hard to keep all the cranes moving.

“Despite a politically troubled summer in Turkey, real estate construction companies have launched very aggressive campaigns with the support of the government,” Mr. Bertrand said.

It will undoubtedly be a uphill battle. Although the Turkish currency has so far been strong, recent fluctuations have been amplified by the instability at Turkey’s southern border. “We expect a start to 2017 with a strong USD and minor further depreciation of the TRL throughout the year,” Mr. Bertrand said.

And once again, savvy buyers may be the ones to benefit. “2017 will be probably a hard year as much as 2016, due to both domestic turmoils and global context,” said Ms. Atalay. “Foreign demand for property has been down by at least 20% on 2015. It will be a buyers’ market.”